Election Recession

In a previous job the office bean counter asked how much I wanted to contribute to my 401k, and I told her nothing. She couldn’t believe it, but I had no confidence in the market. I started a new job in 2006, and though we all stayed employed somehow, what my previous employers had contributed to that 401k was decimated in the great recession. The account changed firms two or three times, and the few hundred dollars that remained were eaten up by handling fees. Easy Come, Easy Go.

Even though I don’t have one, I just saw an email warning that the Market Trend Analyzers (MTA) are advising 401k holders to take their money out of equities (stocks) and move it into bonds and money markets to prevent the sorts of losses seen in 2008. I don’t know if they are talking about the Hays Advisory MTA (pdf) or something from another group.

My office neighbor and I joked that too many emails like that could both predict and cause a recession. “Let’s all take our money out of the stock market, then act surprised when it collapses.” She also noted that now is the worst time to sell because stocks are so low from the oil glut, China, etc. “You don’t actually lose money until you sell low,” she said.

It’s fairly easy to predict a recession. ZeroHedge seems to be in constant panic mode -while featuring ads for gold and silver. The Automatic Earth has a Debt Rattle column every few days, and The ArchDruid Report regularly reminds that the US Empire is already in a state of collapse. Huffpost predicted a 2017 recession back in 2014. Even FiveThirtyEight and Econbrowser currently have articles about the next recession. But it is a lot harder to correctly predict a recession very soon before it occurs, so I’m not going to panic any more than usual.

I wondered how much effect a near term recession would have on the presidential race. Almost no one but Scott Adams gives Trump much chance of winning the election because his unfavorables trump his favorables for a net of -37. According to a recent poll, Sanders would destroy Trump by 18 points and Clinton would defeat him handily by 13 points. And polls are never wrong, are they?

But if we had a recession this year, I think you could throw those polls out the window.

FDR certainly owed his election to the great depression that started three years earlier, and only got worse, but from 1942 to 2004, recessions seemed to cluster in the second year after a presidential election.Then we had the 2008 recession, which began a mere seven weeks before the McCain-Obama vote, on a day when John McCain claimed, “the fundamentals of our economy are strong.” McCain would probably have been dragged down by choosing Sarah Palin anyway, but it had to help Barack Obama that he wasn’t in the incumbent party.

Which candidate would a recession help? A recession during the primaries would have to seal the deal for Trump and favor Sanders.

In the general election, I would think the Republicans with an outsider candidate, Trump or Cruz, would benefit greatly. Kasich or Rubio, not as much. For the Democrats, Sanders has already distanced himself from the current financial system, so he might avoid the ire that usually befalls the incumbents. As an establishment candidate against an outsider, Clinton would be toast.

In the long run, though, recessions have greater implications than just who gets elected at the top. I’m certainly not hoping for one.